A revenue and collections cycle represents the business activities associated with providing goods to customers and collecting their payments. The revenue cycle processes should emphasize quick turnover of customer payment to ensure a strong cash flow, but managers should also separate duties to deter any chance of internal fraud and theft in revenue cycle.

Sales Orders

Customer orders are captured by a sales department. The customer may speak to a live person or submit an electronic form. Either way, the sales department should check the customer's credit before approving the order. If the customer has outstanding debt with the company, they may demand immediate payment for any future goods. The sales department should also ensure that adequate inventory is available before processing and submitting the order.

Shipping

Once the sales order is complete, the company warehouse employees are responsible for shipping the order. If all of the inventory is not available the goods may be sent in multiple shipments. The shipping department should mark items as complete after they ship to reduce the possibility of duplication. Even at small companies, it's critical that the employee that ships the order is not the same person that generates the invoice. Having control over record-keeping and physical custody of the asset is a poor internal control that could lead to employee theft.

Billing

If the company extended the customer a line of credit, they'll generate a sales invoice after the goods ship. The invoice will indicate the amount to be paid, where to send the payment and the payment due date. Companies can generate invoices using an open-item method or a balance-forward method. A balance-forward invoice is typically sent on a monthly basis. Under the open-item invoice, a separate invoice is sent for each order. The open-item method is more conducive to quick payment but can also become confusing for customers that purchase frequently.

Cash Collections

Companies need to carefully design their cash collection procedures to avoid the possibility of theft. If payments are sent directly to the company, at least two employees should be present when opening the mail. An accounts receivable employee should keep a log of all cash and checks received and prepare a deposit slip. Cash and checks should be stored in a secure, locked area until the cash is deposited. At the end of the month, an accounting manager should reconcile the bank account in order to ensure the accuracy of all deposits.